What is Bitcoin?

Bitcoin is a form of digital currency. However, unlike the fiat currencies you may be familiar with, it is not controlled by any central bank. Instead, the Bitcoin financial system is operated by thousands of computers distributed worldwide. Anyone can participate in the ecosystem by downloading open-source software.

Bitcoin is the first cryptocurrency, announced in 2008 (and launched in 2009). It enables users to send and receive digital money (bitcoins, symbolized as "BTC"). What makes it attractive is its censorship-resistant nature, allowing transactions to be conducted anytime and anywhere.

What is Bitcoin used for?

Bitcoin is used for several reasons. Many people appreciate its decentralized nature – anyone with an internet connection can send and receive bitcoin. It's like cash in that no one can stop you from using it, but being digital means it can be transferred globally.

What gives Bitcoin value?

Bitcoin's characteristics include decentralization, censorship resistance, security, and borderlessness.

These features make it attractive for use cases such as international money transfers and payments where individuals in the transaction do not want to disclose their identities (similar to debit or credit cards).

Many people do not spend their bitcoins; instead, they choose to hold onto them for the long term (known as hodling). Bitcoin is nicknamed digital gold due to its limited money supply. Some investors see Bitcoin as a store of value. Because it is scarce and difficult to produce, it has been likened to precious metals like gold or silver.

Holders believe that these characteristics – combined with global availability and high liquidity – make it an ideal asset for long-term storage. They believe that the value of Bitcoin will continue to increase over time.

How Bitcoin works

When Alice makes a transaction with Bob, she doesn't send money in the way you might expect. It's not like she's sending him a dollar bill through electronic payment. It goes like this: she writes on a note (visible to everyone) that she's sending a dollar to Bob. When Bob sends a similar amount to Carol, she can see that Bob actually has them by looking at the note.

This note is a specific type of database called a blockchain. All network participants have an identical copy of this note stored on their devices. Participants connect to synchronize new information.

When users make payments, they broadcast it directly to the peer-to-peer network – no bank or centralized entity to process transfers. To add new information, the Bitcoin blockchain uses a special mechanism called mining. Through this process, new transaction blocks are recorded on the blockchain.